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HOW IS FOREIGN EXCHANGE TRADED?

In Forex trading one currency is always bought and another sold at the same time. Currencies are
quoted and traded in pairs such as EUR-USD. The major currencies are EU$ (Euro), GB $
(Sterling/British Pound), AU$ (Australian Dollar), NZ$ (New Zealand Dollar), CA$ (Canadian Dollar),
CHF (Swiss Franc) and JPY (Japanese Yen)-and they are traded against the US$ (US Dollar). The major
currencies are always quoted in the following order:

The first currency listed in a pair is known as the base currency, while the second currency is called
the counter or quote currency. The base currency is the “basis” for the Bid price (the cost of selling
the base currency) or the Ask price (the cost of buying the base currency). For example, if you Ask
EUR/USD you have bought Euros (and simultaneously sold Dollars). You would do this if you
expected that the Euro would rise in value against the US Dollar.

If the EUR/USD is quoted at 1.2755, this means that one Euro is currently worth just over $1.27. If
the market moves from 1.2755 up to 1.2756, that represents a move of one pip. A pip is the smallest
increment of a currency pair and it is one ten thousandth of a Euro, Dollar or Pound and one
hundredth of a Yen.

Forex is traditionally traded in lots, which represent 100,000 units of the base currency although
much smaller lot sizes are available today. In the case of the EUR/USD currency pair, a pip is worth
$10 in one lot and is $1 in a 10,000 EUR/USD position and $1 on a %10,000 position.